You wrote the van off in one year here. America wants it spread over six

Figures relate to tax year 2025-26 (UK) · 2025 (US)

You bought a van, a laptop and a set of tools. Your accountant deducted the lot against this year profit, and the British tax bill fell sharply.

Then the American return arrives and the same purchases are spread across several years. The profit on that side is higher, the credit no longer covers it, and nobody warned you that capital allowances work nothing like American depreciation.

Key takeaways

• Britain gives relief for business equipment through capital allowances.
• The annual investment allowance can write off qualifying kit immediately.
• America spreads most assets over a set recovery period instead.
• The two timings differ, so the taxable profit differs each year.
• That gap can strand foreign tax credits in the wrong year.
• Cars are treated differently again in both systems.
• Keeping one fixed asset register for both returns saves hours.

What is the capital allowances system?

They are the British way of giving tax relief for money spent on business equipment. According to HMRC guidance, you cannot simply deduct the cost as an expense, so the allowances step in and give relief on a set basis instead.

They cover plant, machinery, tools and fixtures.

Buildings and land sit outside the main rules.

How does the annual investment allowance work?

It lets a business deduct the full cost of qualifying equipment in the year of purchase, up to a generous annual limit. Most small businesses never come close to that ceiling, so in practice you write the kit off immediately.

The limit has stood at £1 million since 2019.

It excludes cars entirely.

How does America treat the same purchase?

It depreciates the asset across a recovery period fixed by the type of property. A computer runs over five years and office furniture over seven, with a percentage of the cost deducted each year rather than the whole amount at once.

Special rules can accelerate part of it.

The default, though, is spreading rather than immediate relief.

A worked example

The figures below are illustrative and use round numbers to show the mechanics.

Marcus is American and runs a joinery business in Leeds. He buys £30,000 of machinery and claims the full amount against his British profit this year.

His British taxable profit drops to £20,000 and the tax falls with it. The relief is complete and immediate.

On the American side he deducts roughly £4,300 of it this year. His profit there is close to £46,000, so he owes American tax on a figure that barely exists in Britain.

The two systems compared

You have to run both calculations, because neither accepts the other figure.

Why does the timing difference matter?

Because foreign tax credits work year by year. A year where Britain gives full relief produces little British tax, so there is little to credit against the American profit that the slower write off leaves behind.

Later years flip the problem the other way.

In our practice this is the most common source of a surprise bill.

Can you match the two deliberately?

To a degree, yes. You can claim less than the maximum in Britain, or make elections in America that pull more of the deduction forward, and a good adviser uses both levers to keep the two profit figures closer together.

Unclaimed British relief is not lost, only deferred.

It carries forward in the pool for later years.

What are the pools?

Anything not written off immediately goes into a pool and attracts a percentage each year. The main pool runs at 18 per cent and the special rate pool at 6 per cent, both on a reducing balance rather than a straight line.

A reducing balance never quite reaches zero.

Most businesses only ever deal with the main pool in practice.

You can clear a small balance in one go.

How are cars handled?

Separately in both countries, and awkwardly in both. Britain sets the rate by carbon emissions, so a low emission car gets far better treatment, while America caps the yearly deduction on a passenger vehicle in cash terms.

Electric cars currently do best in Britain.

A van is usually simpler, because both systems treat it as ordinary equipment.

Neither system allows a full immediate write off here.

What about a car used privately?

The business share is what counts, and both countries expect you to measure it. A car used two thirds for work gives two thirds of the relief, and a mileage log is the only evidence that holds up when either side asks.

Guidance on both sides expects contemporaneous records.

A log written up a year later rarely convinces.

Do capital allowances apply to property?

Not to the building itself, but often to what sits inside it. Lighting, heating, air conditioning and fitted kitchens can qualify as fixtures, which is why a refurbishment bill is worth splitting carefully rather than treating as one lump.

America has its own rules for building components.

Our guide to the ATED charge covers a different property trap.

What happens when you sell the asset?

Britain claws back relief through a balancing charge if you sell for more than the written down value. America does something similar through recapture, taxing part of the gain as ordinary income rather than as a capital gain.

The amounts clawed back rarely match.

That is the timing difference unwinding in reverse.

Does it matter if you trade through a company?

It changes who claims rather than whether relief exists. A limited company claims the allowances against its own profits, and your American return then looks at the company through a separate set of rules altogether.

Our guide to Form 5472 for UK LLC owners covers the reporting.

Sole traders face the mismatch directly on one return.

What about assets bought before you moved?

Britain treats equipment you bring into a business as introduced at market value, not at what you originally paid. America keeps its own record from the original purchase, so the two starting figures diverge from day one.

Photograph and value the kit when you arrive.

Reconstructing that later is painful.

How to keep the two in step

1. Keep one asset register listing every purchase and its date.
2. Record the sterling cost and the dollar cost side by side.
3. Note the British claim made against each asset each year.
4. Note the American deduction taken on the same asset.
5. Track the written down value separately in each system.
6. Flag any asset sold so both clawbacks are calculated.
7. Review the two profit figures together before either return is filed.

How do repairs differ from capital spending?

A repair restores what was already there and comes off your profit straight away. Capital spending buys something new or better, and that is where capital allowances take over instead of a simple deduction.

Replacing a broken window is a repair.

Replacing every window with a better type is not.

Can you claim on second hand kit?

Yes, and the relief works in exactly the same way. What you paid is what matters, so a used machine bought at a fair price attracts the same treatment as a new one in both countries.

Buying from a connected party is the exception.

Those purchases face restrictions on both sides.

What about software and websites?

Software usually qualifies for capital allowances in Britain when you buy it outright rather than subscribe. America treats purchased software on its own schedule, and a monthly subscription is simply an expense in both systems.

Website build costs are more arguable.

The split between design and content drives the answer.

Does hire purchase count?

It does, and more generously than people expect. You can usually claim on the full cash price once the asset is in use, even though you have paid only a fraction of the instalments so far.

The interest element is a separate deduction.

A true lease works differently again.

Does leasing change anything?

Considerably. Under an operating lease you never own the asset, so the rental payments are an expense and no capital allowances arise at all. America applies a similar logic to a genuine lease.

The paperwork decides which category you are in.

Read the agreement before assuming either way.

What if the business makes a loss?

A large claim can create or deepen a loss, and the loss then has to find somewhere useful to go. Britain lets you carry it back or forward, while America applies its own limits on how much a loss can absorb.

A loss in one country is not a loss in the other.

Our guide to estimated tax payments covers the cash flow side.

Do you have to claim every year?

No, and that flexibility is genuinely useful. Capital allowances are claimed rather than given, so you choose the amount each year and leave the rest in the pool for later without losing anything.

American depreciation offers far less choice.

It generally runs whether you want it or not.

What records do you need?

Invoices showing the date and the cost, evidence of business use on any shared asset, and the register that ties the two systems together. Those three between them answer almost anything either authority asks.

Bank statements alone do not identify the asset.

Scan each invoice when it arrives rather than hunting for the paper years later.

Keep the invoice for as long as you hold the item.

Is it worth claiming the full amount?

Not always. Claiming everything in one year can waste personal allowances and leave nothing to credit abroad, so a smaller claim spread across years sometimes produces a better combined result.

The right answer depends on both tax rates.

We model it before you lock the claim in.

Mistakes and penalties we see with capital allowances

The first is using the British profit figure directly on the American return.

The second is claiming the full allowance without checking the credit position.

The third is forgetting the balancing charge on kit you sell or scrap.

The fourth is treating a car like any other piece of equipment.

How US UK Tax Accountants helps

We build one asset register that serves both returns, model the claim against the credit position, and keep the two written down values straight year after year. Then we file both sides from the same underlying numbers.

Where earlier years used the British figure alone, we look at an amendment. Our US federal return service covers the filing.

If you run a British business and file in America, get in touch. The sooner the register exists, the less there is to rebuild.

Last reviewed 6 October 2026. This article is general information and not personal tax advice. Every business turns on its own facts, so take advice on yours before claiming.